JK Cement Ltd. share price target

We reiterate BUY on JK Cement with a TP of Rs 1,314 (10x FY21 consolidated EBITDA). JKCE is strengthening its grey cement business through expansions and up-gradation. In white/putty segment, its steady expansions in near duopolistic market (in India) will continue boost profits. We reiterate BUY with a higher TP of Rs 1,314 at 10x its FY21E consolidated EBITDA (implied EV of USD 96/MT). The stock trades at attractive valuations of 8.2x FY21E EBIITDA and at EV of USD 85/MT.

While northern operations of the company were facing clinker bottlenecks, soft demand led to grey cement volume decline of 3.3% for JK Cement for Q1FY20. To address clinker bottlenecks, the company has capex plans underway. The new clinker line at Mangrol unit for a 7500 TPD capacity is expected to be commissioned by September 2019. Further, in FY21E (December 2020) the capacity of the third clinker line at Nimbahera plant would be enhanced by 1000 TPD to 6000 TPD. Another 1 MT brownfield expansion of grinding capacity at its Mangrol unit would be commissioned...

Grey cement volumes decline; white cement volume growth healthy: Grey cement volumes (incl. clinker) decreased 3% YoY to 1.97mt, while white cement volumes were up 21% YoY to 0.34mt in 1QFY20. Combined realizations stood at INR5,753/t (+19% YoY;+11% QoQ). Revenue increased 19% YoY to INR13.3b (our est. of INR12.7b). Healthy realizations boost profitability: Blended EBITDA/t increased 102% YoY to INR1,315 due to healthy realization, partially offset by 6% YoY rise in cost/t. EBITDA grew 102% YoY to INR3.03b (our est. of INR 2.6b), with margin...

View: Robust performance led by strong realization; Buy JKCE posted a strong set of numbers with 19%/ 101.8%/ 211.8% YoY growth in revenue/ EBITDA/ APAT to `11.3 bn/ `3 bn/ `1.5 bn in Q2FY20 driven by strong 19.4% YoY/ 11% QoQ blended realization growth. We expect 15.1/ 20.3%/ 15.9% revenue/ EBITDA/ APAT CAGR over FY19-21E led by 8.9%/ 12.3% blended volume growth and 6.5%/ 1.8% blended cement realization growth in FY20E/ FY21E. We like JKCE because of its sizable presence in higher EBITDA margin (25-28%) contributing white...

Growth was Driven Due to Improvement in Sales Volume & Realizations: Healthy volumes to drive growth: The Sales volume in Q4FY19 was 29 MnT as against 27 MnT in Q4FY18, registering a growth of 6% YoY basis.

Sector: Cement /Small Cap | Earnings Update 4QFY19 Background: JK Cements is one of the largest cement players in North India. It manufactures grey cement, white cement and white cement based wall putty. Currently the grey cement capacity is 10.5MTPA. Domestic white cement capacity is 0.6MTPA (second only to UltraTech). The company also manufacturers putty and has an installed capacity of 0.7MTPA. The company also has plants in Fujairah (UAE) with an installed capacity of 0.6MTPA (white cement) and 1.02MTPA (grey cement) in a 90:10 JV with the Government of Fujairah. It has also expanded its grey cement capacity by 3 MTPA through two split grinding units (1.5 MTPA each), one at Mangrol...

We reiterate BUY with a TP of Rs1,162 (10x FY21 consol EBITDA). Our TP implies EV/MT of USD 92. We continue to like JKCE owing to its large exposure to the lucrative white/putty business (55% of consol EBITDA) and JKCEs expanding grey cement capacity in the strong pricing north/central markets. Healthy cash generation should keep net D/E to remain at/below 1x and net debt/EBITDA below 3x despite ongoing expansions, in our view. We reiterate BUY with a TP of Rs1,162 (10x FY21 consol EBITDA). Our TP implies EV/MT of USD 92.

Expansion in full swing; to lead next phase of growth Due to clinker constraints in the north, topline growth in the north was somewhat restrained. To remove these bottlenecks, the management had announced capacity expansion plans. The new clinker line at Mangrol unit for a 7500 TPD capacity would be commissioned by September 2019. Additionally, the 1 MT each brownfield expansion at its Nimbahera and Mangrol grinding units would be commissioned in H1FY20E as well. Further, the greenfield GUs at Aligarh and Balasinor are expected to be completed in...

JK Lakshmi Cement (JKLC) reported Q3FY19 earnings below our estimates Change in Estimates | Target | Reco due to higher than expected costs. JKLC's investments in Waste Heat recovery (WHR) plant at Durg, Chhattisgarh unit and other cost rationalization...